Economists React: ‘Slow Motion’ Growth in India

India’s economic growth slid to 6.9% in the June to September quarter, a troubling drop from the previous quarter’s 7.7%. Economists give their take on the figures, which were released Wednesday:

Thomson Reuters

India’s economic growth slid to 6.9% in the June to September quarter. Above, a graphic representation of India’s quarterly GDP.

– Taimur Baig, Deutsche Bank:

There’s a “year of below-trend growth ahead.”

“The expenditure side of GDP painted a somewhat bleak picture, with investment growth contracting…We expect that one positive by-product of lower growth would be a decline in demand side impulse to inflation, which would then pave the way for some monetary policy easing in the next fiscal year.”

(DB has slashed its forecast for the 2011-2012 fiscal year to 7% from 8% and the following year to 7.5% from 8%.)

– Sanjay Mathur, RBS:

Growth is now “in slow motion…Our assessment is that the slowdown will intensify in the coming months…Corporate profits have now been on the weak side of expectations for nearly three quarters. As profits are the main driver of investment activity, the latter is likely to remain subdued…From a policy perspective, the data is not particularly suggestive of an imminent shift. Nonetheless, the somber outlook suggests that growth is likely to be sub-7% next year and as inflation subsides, the RBI is likely to deliver moderate rate cuts. We now this is likely from H2 2012.”

– Stephen Schwartz and Sumedh Deorukhkar, BBVA:

“High borrowing costs on the domestic front coupled with tightening global liquidity conditions are increasingly crowding out private investment. Investment had last contracted during the Lehman crisis. To revive investment, further action will be needed on structural reforms to attract foreign capital, unclog the food supply chain and improve governance. The past month has seen some encouraging announcements, including the opening up of India’s retail sector to foreign investment, but more needs to be done.”

– Andrew Kenningham, Capital Economics:

“Exports, which had been a bright spot for much of the year, fell sharply in October relative to September. Tighter monetary policy is likely to have a negative impact on growth for many months to come. As a result, we expect growth to slow further in the fourth quarter and to remain below trend in the first half of 2012, even if the global economy is not hit by a major financial crisis in the euro-zone. We are cutting our GDP forecast to just 7% for both 2011 and 2012, from 7.5% previously…With the latest measure of wholesale price inflation still well above target, at 9.7% year-on-year, and the rupee having depreciated by 18% since early August, interest rate cuts look some way off yet.”

– Leif Eskesen, HSBC:

“Looking ahead, external demand weakness and tight monetary conditions will dampen growth. However, inflation is expected to stay elevated and keep the RBI on hold for an extended period…While growth risks are rising, this may not necessarily lead to lower price pressures given that capacity constraints will linger, partly because of the slow pace of investment. Also, the weaker exchange rate does not help. This means, the RBI will have to keep rates on hold for an extended period of time.

–Tomo Kinoshita and Aman Mohunta, Nomura:

“In our view, today’s GDP data and other leading indicators suggest that economic growth will remain weak in the next few quarters. High interest rates and the stalemate on the policy front are likely to put downward pressure on investments, while still elevated inflation will probably weigh on private consumption. Exports are also likely to ease because of weakened global demand. The OECD leading indicator for India dropped further in September, corroborating with our view that India is heading for a slowdown.”

– Rahul Bajoria and Siddhartha Sanyal, Barclays Capital:

“Leading indicators offer little relief for the manufacturing sector. Leading indicators such as intermediate goods and capital goods remain soft, with no strong pick-up likely in the coming months. The only bright spot in the GDP release was again exports, which rose 27.4% year-on-year, up from 24.3% in the previous quarter. However, with supply-related problems in the auto sector and weaker external demand, we think export growth is likely to moderate in the coming quarters. A marked fall was also apparent in the mining segment in today’s GDP report, partly driven by weakness in the extraction of natural gas and coal. A ban on mining activity in Karnataka is also likely to weigh on mining growth in the coming quarters.”

– Anubhuti Sahay, Standard Chartered:

“GDP slips below 7%, implying [second half] growth of 7.3%; the trend is unlikely to reverse. Policy focus to shift towards growth sooner rather than later as inflation eases in the next quarter. The Reserve Bank of India is likely to maintain the status quo on rates; we expect it to start easing in Q2-2012.”

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